Value context and insight. lkm@koreatimes.co.kr
Debate heats up over 'large shareholder requirement'
Rep. Choo Kyung-ho of the main opposition People Power Party, right, speaks during an audit of state organizations in Daegu, Oct. 12. Yonhap
By Lee Kyung-min
By Lee Kyung-min
The government is facing a fierce backlash following its move to push ahead with a revision whereby the minimum combined value of shares held by individual retail investors subject to a capital gains tax of a rate between 22 percent and 33 percent will be 300 million won ($265,600). The revision settled more than two years ago is set to take effect Jan. 1, 2021.
A petition on the presidential office website seeking dismissal of Deputy Prime Minister and Finance Minister Hong Nam-ki for the ministry's refusal to ease the rules to raise the amount to 1 billion won has garnered over 200,000 signatures.
“The local stock market is enjoying a brisk performance due in large part to greater participation of many individual retail investors. If things stay the course, many retail investors will dump their shares at the end of the year, helping institutional and foreign investors rake in money with market funds flowing into the much-heated property market,” one petitioner wrote.
The collective move is the latest development of the highly sensitive issue concerning taxation on financial investment, a popular method of augmenting asset-gaining force brought on by cheap borrowing cost.
The petition came in less than a week after the main opposition People Power Party submitted a revision bill, seeking to raise the amount to 1 billion won. The bill was put forth by PPP lawmaker Choo Kyung-ho and supported by 16 other party members.
The politically charged move is gaining force amid the growing presence of individual retail investors in the financial investment market, illustrated by a separate revision to raise the minimum deductible amount subject to a 20 percent capital gains tax to 50 million won ($43,774) from 20 million won.
Cheong Wa Dae and lawmakers from both the ruling and opposition parties call for loosened rules, a rare agreement reflective of the public sentiment swinging rapidly due to a series of key policy failures ― notably ones involving the real estate market. Choo seeks to have the revision take effect April 1.
Yet the ministry says making changes to a revision settled over two years ago will hamper policy consistency and create further confusion in the market.
The bill also seeks to have the minimum taxable amount of gains defined by the total value of shares held by “one shareholder or investor.”
This will remove clauses whereby the amount is determined by the value of shares held by an investor's immediate family members, as well as grandparents or grandchildren, combined.
The former second vice minister of the ministry also seeks to have the revision subject to National Assembly approval and review, a much more difficult, time-consuming process than staying the course, whereby the rule is considered an ordinance or presidential decree, which state administrative bodies can easily revise without legislative oversight.
Rep. Yang Hyang-ja of the ruling Democratic Party of Korea (DPK) said the chamge to the revision is needed because investor sentiment would be widely deterred, sapping the vibrancy of the equity market that should contribute to the much-needed economic recovery amid the virus-triggered pandemic.
“Bolstering market vibrancy is just as important as upholding the principle of fair taxation,” she said during a Supreme Council meeting at the National Assembly in Yeouido, Seoul, Wednesday.
“Few would say the current law backs government efforts to draw greater investment in the stock market. The finance ministry should drop elitism which is dismissing investors' hopes and dreams of augmenting financial assets.”
The move follows a steady outflow of funds in the equity market. Data from the Korea Financial Investment Association (KOFIA) showed over 150.6 trillion won was held by Money Market Fund as of Monday, recovering to over the 150 trillion won level, two months after reaching a peak of 151.1 trillion won, Aug. 14.
The highly liquid, near-term investment instrument is considered where investment funds stay temporarily due to uncertainty in the equity market.